Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1. The Mountain Fresh Company had earnings per share (EPS) of $6.32 in 2006 and $11.48 in 2011.  The company pays out 30 percent of its earnings as dividends per share (DPS), and the company’s stock price is currently $37.50 (in 2011).

(a) Compute the growth rate in dividends (g) over this 5-year period.

(b) Compute the expected dividend per share next year (i.e., what is D1, assuming the earnings and dividends of Mountain Fresh growth at a constant rate).

(c) Based on the information given above, what is the cost of retained earnings common equity (rs) for Mountain Fresh Company?

2. The director of capital budgeting for a firm has identified two mutually exclusive projects, A and B, with the following expected net cash flows:
                           Expected Net Cash Flows
                Year        Project A            Project B
                  0          ($100)              ($100)
                  1              70                10
                  2              50                60
                  3              20                80

Both of the projects have a cost of capital of 14 percent.

(i) What is the regular payback period (in years) for Project B?

(ii) What is Project A's net present value (NPV)?

(iii) What is the profitability index (PI) for Project B?

(iv) What is the modified internal rate of return for Project A?

3a.  Clemson Software is considering a new project whose data are shown below.  The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years.  Revenues and other operating costs are expected to be constant over the project’s 3-year life.  What is the project’s Year 1 cash flow?

Equipment cost (depreciable basis)    $65,000

Straight-line depreciation rate    33.333%

Sales revenues, each year    $60,000

Operating costs (excl. deprec.)    $25,000

Tax rate    35.0%

3b.  Weaver Chocolate Co. expects to earn $3.50 per share during the current year, its expected  dividend payout ratio is 65%, its expected constant dividend growth rate is 6.0%, and its  common stock currently sells for $32.50 per share.  New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred.  What would be the cost of retained earnings common equity (rs) for Weaver Chocolate Co.?  What would be the cost of equity from new common stock (re)?

4a.  Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product.  Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0.  The company’s last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%.  What is the current price of the common stock?

4b.  A company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future.  The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%.  What is the company's stock price today (P2012)?  All things held constant, what would be the price of this company’s stock in eight years (P2020)?

5a.  Sapp Trucking’s balance sheet demonstrates a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt presently has a market value of $50 million. The balance sheet also shows that company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million.  The current stock price is $22.50 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 40%.  The CFO thinks the WACC must be based on market value weights, but the president thinks book weights are more appropriate.

What is the WACC based on the CFO’s preference (i.e., market value weights)? What is the WACC based on the president’s preference (book value weights)?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91795

Have any Question? 


Related Questions in Basic Finance

Distinguish between the types of financial information

Distinguish between the types of financial information contained in the various financial statements. Which statements provide information on a company's performance over a reporting period, and which present data on a c ...

1 modify the eoq formula for the case where the holding

1. Modify the EOQ formula for the case where the holding cost is a concave function of the number of items kept in inventory. 2. Devise an optimal inventory policy for the EOQ model with a finite time horizon TH . 3. Dra ...

1 compare and contrast the role of erp systems and planning

1. Compare and contrast the role of ERP systems and planning systems in enhancing firm performance and competitiveness. 2. Compare and contrast the role of ERP systems and logistics execution systems. 3. Compare and cont ...

Write 3-5 pages on the implementation of dodd-frank and the

Write 3-5 pages on the implementation of Dodd-Frank and the qualified mortgage rules in Dodd-Frank: specifically, concentrate on how small community banks have been treated relative to other institutions since the onset ...

Quizquestion 1 when viewing the terms special returns or

QUIZ Question 1. When viewing the terms "special returns" or "abnormal returns," we know this can refer to _____. the Efficient Market Hypothesis gains in excess of the market risk-adjusted average convertibles and warra ...

1 what is business culture does national culture affect

1. What is business culture? Does national culture affect business culture? Discuss some implications of national culture for business culture. 2. Discuss how national culture affects the business culture and the busines ...

1 what is the risk insured by private mortgage insurance2

1. What is the risk insured by private mortgage insurance? 2. What are the principal features of an affordable housing loan qualification, and how are they different from those of recent temporary "Making Homes Affordabl ...

What is meant by break even drivers identify two important

What is meant by break even drivers? Identify two important drivers affecting the amount of revenues needed for ventures to break even Explain

1 how has the community development block grant served to

1. How has the Community Development Block Grant served to help communities perform local mitigation? 2. Why do some people consider insurance to not be a proper mitigation method? 3. Why are structural controls a contro ...

Trying to do business in mexico gringo styleted dorman was

TRYING TO DO BUSINESS IN MEXICO, GRINGO STYLE Ted Dorman was looking forward to his new assignment as plant manager at a newly formed American-Mexican joint venture in Guadalajara, Mexico. The American company, Sterling ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro